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ECONOMICS REPORT - Mutual Funds - 2003-10-24

Broadcast: October 24, 2003

This is Bob Doughty with the VOA Special English Economics Report.

People invest money in the hope their wealth will grow over time. Some have financial advisers make their investments for them. But even people without very much money can invest. Of course, there are no guarantees. So one way investors try to limit their risk is to buy shares in a mutual fund. A mutual fund is a collection of different financial securities.

Securities include stocks and bonds. Stock in a company gives the buyer a chance to vote on company issues. Stockholders have a financial share in the company. They may receive a small payment, a dividend, from time to time for each share owned. But the value of stocks can change greatly in a short time.

Bonds represent a loan. Companies or governments sell bonds as a way to borrow money. Buyers earn interest as they wait for the bonds to reach full value over a period of years.

Mutual funds gather money from many investors and buy many different securities. A mutual fund can spread money over hundreds of investments.

In the United States, the mutual fund industry controls seven-million-million dollars of investments. The oldest fund is Massachusetts Investors Trust, begun in nineteen-twenty-four.

The biggest fund is the Vanguard Five-hundred Index Fund of the Vanguard Group. This fund is valued at eighty-two-thousand-million dollars. It invests in companies listed on the Standard and Poor's Five-hundred Index. The S-and-P Five-hundred is often used as a measure of the stock market in the United States.

There is risk in mutual funds. They may lose value. And, recently, some activity in the mutual fund industry has been under investigation. In September, New York State Attorney General Eliot Spitzer brought charges against a top officer of a mutual fund company.

Mister Spitzer said the former vice chairman of Fred Alger Management permitted some big investors to trade in ways that other investors could not. Last week James Connelly pleaded guilty to interfering with an investigation.

Federal officials are also investigating illegal trading activities. The chairman of the Securities and Exchange Commission, William Donaldson, has called for new rules for mutual funds. Government lawyers are expected to make proposals next month.

This VOA Special English Economics Report was written by Mario Ritter. This is Bob Doughty.